Europe’s electricity system

Europe’s national power grids are interconnected by cross-border lines, what are known as “interconnectors”. This creates the fundamental physical structure that enables electricity to be traded across borders and will lead to prices converging across Europe. Experts talk about the European internal energy market. Non-discriminatory and cross-border access to our electricity grids is subject to the condition that system security is guaranteed at all times.

Europe’s internal energy market

The implementation and advancement of Europe’s internal energy market has been at the heart of the European Union’s energy policy for years. That’s because it is regarded as the way to a secure, sustainable and affordable energy supply in the long term.

The starting point was the first EU Directive on the liberalisation of the internal electricity market passed on 19 December 1996, which was transposed into German law in 1998. The idea behind this was to promote cross-border electricity trading and competition and in doing so create a European internal market for energy. This marked the beginning of a new era in the history of electricity supply. The EU succeeded in convincing the member states that electricity should be recognised as a commodity that from now on should be traded freely. The defined areas in which vertically integrated power utilities had previously been responsible for generation, the grids and distribution were dissolved.

The second European internal power market package of 26 June 2003 placed transmission system operators (TSOs) at the centre of the EU’s liberalisation efforts. The first provisions regarding “unbundling” have been implemented. The term “unbundling” was used by EU legislators to outline new regulations designed to separate generation, grid and sales operations and assign them to standalone but integrated power utilities. This gave rise to independent TSOs. These companies continued to enjoy a “natural monopoly” but were now subject to a new regulatory system. The function of national regulatory authority in Germany was assumed by the Federal Network Agency in 2005.

On 13 July 2009, the third liberalisation package finally marked the beginning of the TSO’s institutional independence from their parent companies. At the same time, ACER was set up – a European authority tasked with coordinating cooperation between the national regulatory authorities. It is also involved in the development of European network regulations – what are known as the “network codes” –, which regulate cross-border cooperation between TSOs, lay down connection rules and specify the European market design. Also in 2009, ENTSO-E, the European Network of Transmission System Operators for Electricity, was founded to act as an interface between European regulators, stakeholder groups and TSOs.

The European energy union

Europe’s energy system has entered a new phase of development. The EU wants to reduce its greenhouse gas emissions by 80 per cent by 2050 compared to 1990 levels. An important building block in this are renewable energy sources. By 2030, they are supposed to account for at least 27 per cent of Europe’s energy consumption. It is the responsibility of Europe’s grid operators to optimally transmit or balance the fluctuating volumes of renewable energy, which is often generated decentrally, without compromising system security. The restructuring of the energy system has led to ever greater amounts of energy being transported over ever longer distances – a task for which the power grids were not actually designed. This is why the grids need to be expanded right across Europe. At the end of this transformation process, we should have a European energy union that guarantees a secure, affordable and climate-friendly energy supply throughout Europe. The Clean Energy Package presented in December 2016 represents another step towards this energy union. Negotiations are still ongoing between the member states and the European Parliament.